Wall Street will be one of the first and largest industries to be automated by artificial intelligence, predicts Kai-Fu Lee, China’s most famous venture capitalist and former Microsoft and Google executive. Lenders, money managers, and analysts—any jobs that involve crunching numbers to estimate a return—are at risk.
“Banks have the curse of the baggage they have, like Kodak letting go of film,” Lee says. “Their DNA is all wrong.”
Lee’s VC firm, Sinovation Ventures, has started to invest in this space by financing Smart Finance Group, a company which algorithmically determines eligibility for payday loans. Lee expects the company’s algorithms to pay out 30 million loans this year, giving the company scale that would never have been achievable when hiring humans to do the same job. That core technology would be easily applicable to other kinds of loans and financial decisions.
As for the big banks that dominate now, the venture capitalist predicts they will be outmaneuvered by smaller startups able to deploy new technology much faster.
Lee has so much trust in AI’s financial prowess that he’s testing three algorithmic trading systems for his own wealth, which trade currencies, arbitrage, and a portfolio of its own choosing.
“I don’t trade with humans anymore,” Lee tells Quartz.
His gamble has paid off: Lee reports that these systems have given an 8x return over his human personal banker, in an interview today with Quartz editor-in-chief Kevin Delaney.
But where small startups might have the ability to deploy their AI systems quickly, large financial institutions have the ability to work at a much larger scale and offer much more appealing compensation packages to computer science talent. JPMorgan has assigned 9% of its revenue this year to technology development, reports Bloomberg, channelling massive resources to hire and develop financial artificial intelligence systems.
“We’re willing to invest to stay ahead of the curve, even if in the final analysis some of that money will go to product or a service that wasn’t needed,” JPMorgan CFO Marianne Lake told a conference audience last summer.